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Owning a home has many perks to it, and being an investment is one of them. Building equity in your home is a sure-fire way to secure your retirement, and can be a way to get cash when you’re 62 or older. If you or someone you know has reached this age, they may be considering a reverse mortgage. However, these things can seem to be a bit more scary than they are. Join us today as we give you the basics when it comes to a reverse mortgage.

No matter where you first heard the term, we are sure that you have heard multiple definitions of a reverse mortgage, which have all conglomerated to make for one confusing subject. Well, reverse mortgages are pretty simple once you break them down. A reverse mortgage is a loan where the lender pays money to you, based on a percentage of your home and the equity you own in it. Unlike a regular mortgage—where you pay the lender to increase the equity in your home—a reverse mortgage almost acts in a way where someone is paying a mortgage to you—as they pay you, your equity decreases.

Now, this may seem like a poor investment strategy at first glance, but there is much more than what meets the eye. Sure, you may have to bear the opportunity cost of decreasing the equity you own in your home, but in return you get cash that you can use now, perfect to cover living expenses, unexpected expenses, pay down other debts, or to take up home remodeling projects. The choice is up to you on how you use it, but you must keep in mind that when you eventually go to sell your home, you will have to pay back the lender what they lent to you, which is covered by the sale of your home. However, you will never owe more than the value of your home, so you can be sure that your heirs will not have any debts from this loan to bear.

To get a reverse mortgage, there are plenty of lenders, as most private banks will offer one, which is backed by the FHA. You must meet some requirements to get one, like the age requirement, owning the home outright (or have a very small mortgage), not hold any federal debt, and being capable of making full payments on your property taxes and other fees. Aversion to the last point can result in a cancellation of the loan and being liable for everything borrowed. So when planning to take out a loan, be sure to take into account regular expenses that you need to cover.

Opting for a reverse mortgage can be a very smart financial move, if done right. Thankfully, with the right information, we are confident that you will make the best decision for you and your family.

For more information regarding home investments, give us a call or come on into our office, we would love to have a chat with you!

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